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MICROS Reports In-Line Q4 Earnings

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MICROS Systems Inc. reported adjusted earnings per share of 58 cents for the fourth quarter of fiscal 2013, which were in line with the Zacks Consensus Estimate.

Revenues

Although revenues of $328.6 million increased 8.6% year over year, it came marginally below the Zacks Consensus Estimate of $330.0 million. Year-over-year improvement in revenues was primarily attributed to the strong demand across Latin America and Asia Pacific regions.

Segment wise, Service revenues came in at $217.8 million, up 11.0% from $196.3 million in the previous-year quarter. Hardware revenues came in at $74.1 million, increasing 7.4% from the year-ago quarter. However, Software revenues declined 1.4% from the year-ago quarter to $36.7 million.

Operating Results

Reported gross margin was 52.7%, down from 54.7% in the year-ago quarter. The year- over-year decline was due to unfavorable business mix.

Operating expenses increased 25.9% on a year-over-year basis to $118.9 million due to increase in Selling, general and administrative expenses and Research and development expenses. Moreover, as percentage of revenues, operating expenses increased 500 basis points (bps) from the year-ago quarter to 36.2%. This in turn impacted MICROS’ operating performance.

Operating income decreased 23.7% from the year-ago quarter to $54.1 million while margins contracted 690 bps to 16.5%.

On a GAAP basis, net income came in at $42.0 million or 53 cents per share versus $48.2 million or 59 cents in the year-ago quarter. Adjusting one-time items and including stock-based compensation expenses, net income came in at $45.6 million or 58 cents.

Balance Sheet

MICROS ended the quarter with cash and cash equivalents and short-term investments of $634.1 million versus $669.3 million at the end of the previous quarter. The company did not have any long-term debt on its balance sheet.

Share Repurchase

The company spent around $85.7 million to buy back 2 million shares for an average price of $42.86 per share.

Guidance

MICROS has projected its fiscal 2014 revenue guidance in the range of $1.295 billion to $1.320 billion, while the non-GAAP earnings per share is expected to hover in the range of $2.46 to $2.50.

Our Take

MICROS’ fourth-quarter results were modest with in-line earnings per share and revenues increasing on a year-over-year basis. The company is expected to take care of its margin position and control expenses. The revenue guidance for fiscal 2014 is at a decent range which projects some improvement in business.

Although MICROS has a decent cash position and is providing valuable solutions to Apple Inc.’s (AAPL - Analyst Report) iPad, we remain concerned due to increasing competition from innovative (tablet-based) Point-of-Sales (POS) solutions by its peers Square, Revel, Groupon Inc. (GRPN - Analyst Report) and NCR Corp. (NCR - Analyst Report). Moreover, the company’s European exposure and a sluggish macro economic environment are the other headwinds, going forward.

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